Distributable cash flow (DCF), a non-generally accepted accounting principles (non-GAAP) financial measure that represents the amount of cash generated during the period that is available to pay distributions, was $250.4 million for second quarter 2017 compared to $221.0 million for second quarter 2016.

Diluted net income per limited partner unit was 92 cents in second quarter 2017 and 82 cents in second quarter 2016. Diluted net income per unit excluding mark-to-market (MTM) commodity-related pricing adjustments, a non-GAAP financial measure, of 91 cents for second quarter 2017 was higher than the 85-cent guidance provided by management in early May primarily due to stronger-than-expected distillate demand and higher crude oil shipments on the BridgeTex pipeline.

"Magellan continues to generate strong financial results, with higher contributions generated from each of our operating segments again this quarter. During the second quarter of 2017, we commenced commercial operations for our recently-constructed condensate splitter and benefited from record refined products pipeline volumes," said Michael Mears, chief executive officer. "Demand for Magellan's fee-based pipeline and terminal services remains solid, and based on active discussions with potential customers, we remain optimistic about the future development of additional growth opportunities to further benefit our company."

An analysis by segment comparing second quarter 2017 to second quarter 2016 is provided below based on operating margin, a non-GAAP financial measure that reflects operating profit before general and administrative (G&A) expense and depreciation and amortization:

Refined products. Refined products operating margin was $214.4 million, an increase of $37.1 million. Transportation and terminals revenue increased $30.1 million between periods primarily due to operating results from the partnership's Little Rock pipeline that commenced commercial operations in July 2016 as well as 7% higher shipments on other segments of the partnership's pipeline system driven by stronger demand for refined products in large part due to higher distillate demand in crude oil production regions and higher average tariffs from the partnership's mid-2016 tariff adjustment, which resulted in a 2% average increase over all the partnership's markets.

Operating expenses increased slightly as higher asset integrity costs related to timing of maintenance work and incremental costs associated with operation of the Little Rock pipeline were mainly offset by more favorable product overages in the current period (which reduce operating expenses).

Product margin (a non-GAAP measure defined as product sales revenue less cost of product sales) increased $8.6 million between periods due to the timing of recognizing gains on futures contracts used to economically hedge the partnership's commodity-related activities. Details of these MTM commodity-related and other inventory adjustments can be found on the Distributable Cash Flow Reconciliation to Net Income schedule that accompanies this news release. The partnership's cash product margin, which reflects only transactions that settled during the quarter, declined between periods due to higher butane costs, resulting in compressed butane blending margins.

Crude oil. Crude oil operating margin was $105.8 million, an increase of $8.9 million. Transportation and terminals revenue increased $7.1 million primarily due to contributions from the partnership's recently constructed condensate splitter in Corpus Christi, Texas that began commercial operations in June 2017 and higher deficiency revenue for volume committed but not moved on the partnership's Houston distribution system.

Earnings of non-controlled entities increased $9.8 million due to contributions from Saddlehorn Pipeline Company, LLC, which is owned 40% by Magellan and began operations in Sept. 2016, and higher earnings from BridgeTex Pipeline Company, LLC, which is owned 50% by Magellan, attributable to incremental shipments in the current period, including additional volume from BridgeTex's new Eaglebine origin that began service in second quarter 2017.

Operating expenses increased $10.9 million primarily due to higher compensation and other costs associated with the partnership's new condensate splitter that began commercial operations in June 2017 and less favorable product overages.

Marine storage. Marine storage operating margin was $32.2 million, an increase of $3.3 million. Revenue increased $4.7 million due to increased storage utilization, higher storage rates and overall increased customer activity in the current period. Operating expenses decreased slightly due to favorable product overages in the current period.

Other items. Depreciation and amortization increased due to recent expansion capital expenditures, and G&A expense increased because of higher employee headcount mainly as a result of expansion projects and more equity-based compensation expense due to timing of accrual adjustments. Other expense was unfavorable between periods related to less favorable non-cash MTM results for hedged crude oil tank bottom inventory owned by the partnership and higher costs for pension settlements.

Net interest expense increased as a result of additional borrowings to finance expansion capital spending and lower interest capitalized for construction projects in the current period. As of June 30, 2017, the partnership had $4.2 billion of debt outstanding, including $197.0 million outstanding under its commercial paper program, and $5.5 million of cash on hand.

Expansion capital projects Magellan remains focused on expansion opportunities and continues to identify new opportunities for future growth. Based on the progress of expansion projects already underway, the partnership expects to spend $600 million in 2017 and $400 million in 2018 to complete its current slate of construction projects.

The expansion of the BridgeTex pipeline from 300,000 barrels per day (bpd) to a new capacity of 400,000 bpd is now complete, and BridgeTex currently has an open season in process to solicit commitments for the incremental space. If warranted by customer demand, BridgeTex may further expand the capacity of the pipeline system up to approximately 440,000 bpd.

The Cheyenne extension of the Saddlehorn pipeline is in the final stages of construction and is expected to commence service during late third quarter 2017.

In addition, the partnership continues to make steady progress on its longer-term construction projects, such as the new dock at its Galena Park, Texas marine terminal, with an expected in-service date of late 2018. Further, Magellan still expects its new marine facility in Pasadena, Texas to become operational in early 2019. Permitting work is now complete, with construction activities underway at this time.

Magellan continues to evaluate well in excess of $500 million of potential organic growth projects in earlier stages of development as well as acquisition opportunities, all of which have been excluded from the partnership's spending estimates at this time. In fact, active discussions with potential customers continue to further develop the partnership's to-be-constructed Pasadena marine terminal, to expand its refined products pipeline system in Texas and to construct a crude oil and condensate pipeline from the Permian Basin to Corpus Christi, among other potential opportunities under consideration.

Financial guidance for 2017 As a result of strong financial performance to date, management is increasing its annual DCF guidance by $20 million to $1.02 billion for 2017, representing a record year for Magellan and 1.2 times the amount needed to pay projected cash distributions for 2017. Management remains committed to its goal of increasing annual cash distributions by 8% in both 2017 and 2018 while maintaining distribution coverage of 1.2 times each year.

Including actual results so far this year, net income per limited partner unit is estimated to be $3.85 for 2017, with third-quarter guidance of 90 cents. Guidance excludes future MTM adjustments on the partnership's commodity-related activities.

Earnings call details An analyst call with management to discuss second-quarter financial results, outlook for the remainder of 2017 and the status of significant expansion projects is scheduled today at 1:30 p.m. Eastern. To join the conference call, dial (866) 548-4713 and provide code 8349495. Investors also may listen to the call via the partnership's website at www.magellanlp.com/investors/webcasts.aspx.

Audio replays of the conference call will be available from 4:30 p.m. Eastern today through midnight on Aug. 8. To access the replay, dial (888) 203-1112 and provide code 8349495. The replay also will be available at www.magellanlp.com.

Non-GAAP financial measures Management believes that investors benefit from having access to the same financial measures utilized by the partnership. As a result, this news release and supporting schedules include the non-GAAP financial measures of operating margin, product margin, adjusted EBITDA, DCF and net income per unit excluding MTM commodity-related pricing adjustments, which are important performance measures used by management.

Operating margin reflects operating profit before G&A expense and depreciation and amortization. This measure forms the basis of the partnership's internal financial reporting and is used by management to evaluate the economic performance of the partnership's operations.

Product margin, which is calculated as product sales revenue less cost of product sales, is used by management to evaluate the profitability of the partnership's commodity-related activities.

Adjusted EBITDA is an important measure utilized by management and the investment community to assess the financial results of an entity.

DCF is important in determining the amount of cash generated from the partnership's operations that is available for distribution to its unitholders. Management uses this performance measure as a basis for recommending to the board of directors the amount of cash distributions to be paid each period and for determining the payouts under the partnership's equity-based incentive plan.

Reconciliations of operating margin to operating profit and adjusted EBITDA and DCF to net income accompany this news release.

The partnership uses exchange-traded futures contracts to hedge against price changes of petroleum products associated with its commodity-related activities and its crude oil tank bottom inventory. Most of these futures contracts do not qualify for hedge accounting treatment. However, because these futures contracts are generally effective at hedging price changes, management believes the partnership's profitability should be evaluated excluding the unrealized gains and losses associated with petroleum products that will be sold in future periods. Further, because the financial guidance provided by management excludes future MTM commodity-related pricing adjustments, a reconciliation of actual results to those excluding these adjustments is provided for comparability to previous financial guidance.

Because the non-GAAP measures presented in this news release include adjustments specific to the partnership, they may not be comparable to similarly-titled measures of other companies.

About Magellan Midstream Partners, L.P. Magellan Midstream Partners, L.P.
MMP, -0.97%
is a publicly traded partnership that primarily transports, stores and distributes refined petroleum products and crude oil. The partnership owns the longest refined petroleum products pipeline system in the country, with access to nearly 50% of the nation's refining capacity, and can store approximately 100 million barrels of petroleum products such as gasoline, diesel fuel and crude oil. More information is available at www.magellanlp.com.

Forward-Looking Statement Disclaimer Portions of this document constitute forward-looking statements as defined by federal law. Forward-looking statements can be identified by words such as: plan, goal, guidance, believe, estimate, expect, projected, future, may, will and similar references to future periods. Although management of Magellan Midstream Partners, L.P. believes any such statements are based on reasonable assumptions, actual outcomes may be materially different. Among the key risk factors that may have a direct impact on the partnership's results of operations and financial condition are: (1) its ability to identify growth projects and to complete identified projects on time and at expected costs; (2) price fluctuations and changes in demand for refined petroleum products, crude oil and natural gas liquids, or changes in demand for transportation, storage, blending or processing of those commodities through its existing or planned facilities; (3) changes in the partnership's tariff rates or other terms imposed by state or federal regulatory agencies; (4) shut-downs or cutbacks at refineries or other businesses that use or supply the partnership's services; (5) changes in the throughput or interruption in service on pipelines or other facilities owned and operated by third parties and connected to the partnership's terminals, pipelines or other facilities; (6) the occurrence of operational hazards or unforeseen interruptions; (7) the treatment of the partnership as a corporation for federal or state income tax purposes or the partnership becoming subject to significant forms of other taxation; (8) an increase in the competition the partnership's operations encounter; (9) disruption in the debt and equity markets that negatively impacts the partnership's ability to finance its capital spending; and (10) failure of customers to meet or continue contractual obligations to the partnership. Additional information about issues that could lead to material changes in performance is contained in the partnership's filings with the Securities and Exchange Commission, including the partnership's Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2016 and subsequent reports on Forms 8-K and 10-Q. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, especially under the heading "Risk Factors." Forward-looking statements made by the partnership in this release are based only on information currently known, and the partnership undertakes no obligation to revise its forward-looking statements to reflect events or circumstances learned of or occurring after today's date.

Contact:

Paula Farrell

(918) 574-7650

paula.farrell@magellanlp.com

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit amounts)

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2017

2016

2017

Transportation and terminals revenue

$

392,240

$

433,239

$

762,315

$

825,910

Product sales revenue

123,689

182,004

270,251

427,624

Affiliate management fee revenue

2,968

4,197

6,147

7,980

Total revenue

518,897

619,440

1,038,713

1,261,514

Costs and expenses:

Operating

134,183

145,294

257,096

276,886

Cost of product sales

95,703

145,975

209,288

318,851

Depreciation and amortization

43,302

48,896

87,056

96,194

General and administrative

34,554

43,393

75,230

83,674

Total costs and expenses

307,742

383,558

628,670

775,605

Earnings of non-controlled entities

15,339

25,576

32,967

47,022

Operating profit

226,494

261,458

443,010

532,931

Interest expense

48,686

51,546

92,410

102,758

Interest income

(404)

(256)

(765)

(548)

Interest capitalized

(7,130)

(3,183)

(13,266)

(7,380)

Gain on exchange of interest in non-controlled entity

(1,244)

—

(28,144)

—

Other (income) expense

(1,958)

2,043

(3,710)

3,213

Income before provision for income taxes

188,544

211,308

396,485

434,888

Provision for income taxes

685

908

1,556

1,752

Net income

$

187,859

$

210,400

$

394,929

$

433,136

Basic net income per limited partner unit

$

0.82

$

0.92

$

1.73

$

1.90

Diluted net income per limited partner unit

$

0.82

$

0.92

$

1.73

$

1.90

Weighted average number of limited partner units outstanding used for basic net income per unit calculation

227,952

228,192

227,889

228,151

Weighted average number of limited partner units outstanding used for diluted net income per unit calculation

227,983

228,245

227,921

228,202

MAGELLAN MIDSTREAM PARTNERS, L.P.

OPERATING STATISTICS

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2017

2016

2017

Refined products:

Transportation revenue per barrel shipped

$

1.427

$

1.481

$

1.422

$

1.472

Volume shipped (million barrels):

Gasoline

71.1

76.7

132.2

142.9

Distillates

36.4

40.7

72.7

78.6

Aviation fuel

6.9

7.6

12.4

13.5

Liquefied petroleum gases

4.2

4.6

5.8

5.7

Total volume shipped

118.6

129.6

223.1

240.7

Crude oil:

Magellan 100%-owned assets:

Transportation revenue per barrel shipped

$

1.360

$

1.380

$

1.403

$

1.456

Volume shipped (million barrels)

45.1

47.3

88.8

88.6

Crude oil terminal average utilization (million barrels per month)

14.7

15.2

14.6

15.9

Select joint venture pipelines:

BridgeTex - volume shipped (million barrels)(1)

19.3

21.8

38.1

40.7

Saddlehorn - volume shipped (million barrels)(2)

—

3.7

—

7.7

Marine storage:

Marine terminal average utilization (million barrels per month)

23.0

23.9

23.2

24.0

(1)

These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 50% by Magellan.

(2)

These volumes reflect the total shipments for the Saddlehorn pipeline, which is owned 40% by Magellan and began operations in September 2016.

MAGELLAN MIDSTREAM PARTNERS, L.P.

OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT

(Unaudited, in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2017

2016

2017

Refined products:

Transportation and terminals revenue

$

247,842

$

277,883

$

472,592

$

519,788

Affiliate management fee revenue

124

353

204

682

Earnings (losses) of non-controlled entities

(38)

422

(80)

533

Less: Operating expenses

98,513

100,713

184,287

194,246

Transportation and terminals margin

149,415

177,945

288,429

326,757

Product sales revenue(1)

122,311

161,723

266,227

401,893

Less: Cost of product sales(1)

94,392

125,220

206,248

292,901

Product margin

27,919

36,503

59,979

108,992

Operating margin

$

177,334

$

214,448

$

348,408

$

435,749

Crude oil:

Transportation and terminals revenue

$

101,340

$

108,455

$

203,068

$

213,508

Affiliate management fee revenue

2,486

3,474

5,270

6,608

Earnings of non-controlled entities

14,711

24,494

31,690

45,144

Less: Operating expenses

20,555

31,410

41,681

58,828

Transportation and terminals margin

97,982

105,013

198,347

206,432

Product sales revenue(1)

(28)

19,403

1,715

22,506

Less: Cost of product sales(1)

1,016

18,607

2,361

21,184

Product margin

(1,044)

796

(646)

1,322

Operating margin

$

96,938

$

105,809

$

197,701

$

207,754

Marine storage:

Transportation and terminals revenue

$

43,058

$

47,794

$

86,655

$

94,201

Affiliate management fee revenue

358

370

673

690

Earnings of non-controlled entities

666

660

1,357

1,345

Less: Operating expenses

16,278

15,375

33,483

28,030

Transportation and terminals margin

27,804

33,449

55,202

68,206

Product sales revenue(1)

1,406

878

2,309

3,225

Less: Cost of product sales(1)

295

2,148

679

4,766

Product margin

1,111

(1,270)

1,630

(1,541)

Operating margin

$

28,915

$

32,179

$

56,832

$

66,665

Segment operating margin

$

303,187

$

352,436

$

602,941

$

710,168

Add: Allocated corporate depreciation costs

1,163

1,311

2,355

2,631

Total operating margin

304,350

353,747

605,296

712,799

Less:

Depreciation and amortization expense

43,302

48,896

87,056

96,194

General and administrative expense

34,554

43,393

75,230

83,674

Total operating profit

$

226,494

$

261,458

$

443,010

$

532,931

Note: Amounts may not sum to figures shown on the consolidated statement of income due to intersegment eliminations and allocated corporate depreciation costs.

(1) Includes gains and losses on related exchange-traded futures contracts.

Cash distributions received from non-controlled entities in excess of earnings

(1,825)

10,725

55

10,884

40,000

Other(3)

2,040

1,450

2,576

2,900

3,000

Adjusted EBITDA

292,520

323,909

562,652

612,235

1,307,000

Interest expense, net, excluding debt issuance cost amortization

(40,345)

(47,279)

(76,858)

(93,176)

(197,000)

Maintenance capital(6)

(31,164)

(26,266)

(59,446)

(41,095)

(90,000)

Distributable cash flow

$

221,011

$

250,364

$

426,348

$

477,964

$

1,020,000

(1)

Because the partnership intends to satisfy vesting of units under its equity-based incentive compensation plan with the issuance of limited partner units, expenses related to this plan generally are deemed non-cash and added back for DCF purposes. Total equity-based incentive compensation expense for the six months ended June 30, 2016 and 2017 was $10.1 million and $10.7 million, respectively. However, the figures above include adjustments of $14.4 million and $13.9 million in 2016 and 2017, respectively, for cash payments associated with its equity-based incentive compensation plan, which primarily include tax withholdings.

(2)

In February 2016, the partnership transferred its 50% membership interest in Osage Pipe Line Company, LLC ("Osage") to an affiliate of HollyFrontier Corporation ("HFC"). In conjunction with this transaction, the partnership entered into several commercial agreements with affiliates of HFC, which were recorded as intangible assets and other receivables in its consolidated balance sheets. The partnership recorded a $28.1 million non-cash gain in relation to this transaction.

(3)

In conjunction with the February 2016 Osage transaction, HFC agreed to make certain payments to the partnership until HFC completes a connection to the partnership's El Paso terminal. These payments replace distributions the partnership would have received had the Osage transaction not occurred and are, therefore, included in the partnership's calculation of DCF.

(4)

Certain derivatives the partnership uses as economic hedges have not been designated as hedges for accounting purposes and the mark-to-market changes of these derivatives are recognized currently in earnings. In addition, the partnership has designated certain derivatives used to hedge its crude oil tank bottoms as fair value hedges, and the change in the differential between the current spot price and forward price on these hedges is recognized currently in earnings. The partnership excludes the net impact of both of these adjustments from its determination of DCF until the hedged products are physically sold. In the period in which these products are physically sold, the net impact of the associated hedges is included in the partnership's determination of DCF.

(5)

The partnership adds the amount of lower-of-cost-or-market ("LCM") adjustments on inventory and firm purchase commitments recognized in each applicable period to determine DCF as these are non-cash charges against income. In subsequent periods when the partnership physically sells or purchases the related products, it deducts the LCM adjustments previously recognized to determine DCF.

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